Watchdog slams credit White Paper

A WIDE-ranging revamp of credit laws does not go nearly far enough to protect borrowers and 'falls short on many critical issues', a leading watchdog has claimed.

The Consumers Association says that the Government‘s Consumer Credit White Paper has missed a golden opportunity to actively address problems in the UK credit market and should go much further than it has.

The watchdog's comments are a major embarrassment for the Government, which unveiled its proposals for consumer credit reform amid great fanfare at the end of last year.

The White Paper was intended to tackle widespread complaints about irresponsible lending, the way lenders target some borrowers and the inaccurate claims made in some product literature.

The proposed legislation is intended to protect all consumers who take out personal loans or borrow on credit cards. It is recognised that many get a raw deal through either not understanding or not reading the tiny small print of the policy documents.

One of the main recommendations in the White Paper is a requirement for financial services companies to include simple 'honesty boxes' that show the real cost of lending on all their products.

The Consumers Association wants this proposal to go further, however, and for lenders to spell out exactly what proportion of borrowers will pay a particular rate.

This follows complaints from some consumers that the headline-grabbing rate advertised by some lenders was not available when they applied for it.

The use of so-called 'risk-based pricing', where lenders restrict availability depending on the borrower‘s profile, should be flagged up, the Consumers Association says.

It says lenders should be made to advertise their 'typical rate', that at least 66% of accepted applicants responding to an advertisement will get.

The watchdog also wants to see more responsible use of consumer credit information by lenders. Currently consumers who have a good credit history can find themselves being wrongly assessed as a poor credit risk because no credit history is interpreted by many banks to be a poor credit risk.

Lenders should be required to provide a complete picture of a person's total existing credit burdens.

'If all lenders were legally obliged to provide full information about all their customers' accounts, then credit files would be complete and accurately reflect indebtedness and risk,' a spokesman for the Consumers Association added.

The White Paper includes a range of proposals to clamp down on illegal loan sharks, those charging extortionate rates of interest on consumer loans, the outlandish product claims made by some lenders.

Despite the wide range of areas that the White Paper does address, it does not, however, include any proposals to target mailshots or junk mail.

Laurence Baxter, senior policy adviser at the Consumers Association, said that in too many areas the White Paper had highlighted a problem but either left it hanging or just proposed more consultation.

'The problem of consumer debt is real and growing and tough action is needed now.'

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